Regulations for AI use in banks in the works
The State Bank of Pakistan (SBP) is
in the final stages of drafting guidelines for the responsible use of
artificial intelligence (AI) in financial services.
These guidelines are designed to
build trust, ensure transparency and accountability, and protect consumer
rights in AI-driven financial products and services.
In its Financial Stability Review
2024, the SBP highlighted the global trend of increasing AI adoption across
industries, including banking. In Pakistan, financial institutions are actively
integrating AI technologies, with common applications including robotics,
process automation for routine tasks, virtual assistants for customer service,
and machine learning techniques for fraud detection and risk management.
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Half of Financial Institutions Using
AI
In 2024, the SBP surveyed 55
regulated entities (REs) — including conventional and Islamic commercial banks,
microfinance banks, digital banks, Electronic Money Institutions (EMIs), and
Payment Service Operators/Providers (PSOs/PSPs) — to assess the state of AI
adoption.
Findings revealed that nearly half
of the REs had either implemented AI technologies or were in the development
stages. AI applications are being used across fraud detection, customer
service, marketing, credit risk assessment, and process automation.
However, with AI adoption comes
risk. The SBP stressed the need for financial institutions to recognize and
manage risks associated with AI, including its environmental impact. Banks are
encouraged to incorporate AI’s carbon footprint into their risk management
frameworks, treating it as a specific risk category.
"The first step is to
acknowledge the potential environmental risks tied to AI systems," the
report noted.
Given that many AI models in banking
are energy-intensive — due to real-time processing demands and high accuracy
requirements — the SBP advises banks to measure emissions associated with AI
models throughout their life cycle.
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“Banks must implement strategies to
mitigate the environmental impact of their AI systems. Using energy-efficient
AI models and algorithms can help address climate concerns,” the report added.
The report also pointed to
international standards, notably the International Financial Reporting
Standards (IFRS) S1 and S2, which require companies to disclose all
sustainability-related risks and opportunities, particularly regarding climate
impacts. Pakistan plans to adopt these standards gradually, starting with
listed companies that meet specific criteria such as asset size, turnover, and
workforce.
The SBP emphasized that banks must
define a clear risk appetite and tolerance for AI’s carbon footprint. Setting
thresholds would help banks balance operational efficiency with environmental
responsibility.
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Systemic Risks Need Attention
The report also warned of broader
systemic risks from AI adoption. Heavy reliance on technology and concentration
of AI service providers could expose banks to losses from operational failures,
cyberattacks, and supply chain disruptions. Furthermore, widespread use of
similar AI models across institutions could heighten asset price
vulnerabilities by increasing correlations in financial markets.
Source: Dawn